19th Report of the Public Accounts Committee (PAC) on GST

The PAC report critically evaluates the implementation of the Goods and Services Tax (GST) regime, introduced in July 2017, with the intention to simplify, unify, and enhance indirect tax compliance in India.

Key Issues Highlighted

• Revenue Decline: The report notes a nearly 2% drop in indirect tax revenue between FY18 and FY20, before the COVID-19 pandemic.
• States’ Compensation Fund: The non-auditing and non-finalisation of this fund for over six years is a major concern, affecting the unified federal tax structure.
• Centre's Oversight: Failure to present the Compensation Fund Account to the Comptroller and Auditor General (CAG) delays compensation to States for GST-linked revenue losses.

Impact on States

• Fiscal Autonomy: Major revenue-generating States express concerns over reduced autonomy and decreased indirect tax collections.
• Destination-Based Tax: GST affects manufacturing-heavy States since it is levied at the point of consumption.
• Compensation Delays: Despite the GST (Compensation to States) Act, 2017, many States report delays or non-receipt of promised funds, adversely affecting governance.

Recommendations by the PAC

• Audit Improvements: The PAC highlights 2,447 inconsistencies amounting to ₹32,577.73 crore in a sample of 10,667 cases, indicating the need for a stronger audit mechanism.
• Formal CAG Mechanism: Establish a formal mechanism with the CAG for timely audits and updates on pending cases.
• GST 2.0 Development: The PAC calls for a comprehensive review to develop "GST 2.0", advocating for States to receive a larger share of GST revenues, suggested between 70%-80% instead of the present 50%.